12,000 more facing axe in big bank cull

Thursday 28 July 2011 10:54 BST

Another chill wind blew through the banking industry today as Credit Suisse said it will axe 2000 jobs after a disastrous latest quarter in its investment bank and HSBC was reported to be considering up to 10,000 job cuts.

The news follows UBS' announcement earlier this week that it would make significant staff reductions with up to 5000 jobs reported to be at risk, and recent investment banking cuts at Goldman Sachs, Lloyds and Royal Bank of Scotland. Fund manager State Street is also slashing 850 posts.

The culls come as banks that recruited heavily after they came out of the financial crisis of 2008-9 try to cut back their costs to reflect lower trading profits in markets and the higher price they are paying in regulation and increased capital needs.

"We have to recognise the likelihood that the current headwinds in the economic and market environment may be more persistent than we would have hoped. We expect interest rates to remain low for an extended period of time and the strong Swiss franc to continue to have an impact on our results," he went on.

"We may also continue to see lower levels of client activity and a volatile trading environment."

Andrew Lim of broker Espirito Santo said he was particularly worried about where today's results left Credit Suisse's capital ratios or its buffers against any future financial shock.

While the bank today said that its core tier one ratio was a fairly healthy 11.4%, Lim reckons that under the forthcoming Basel III regulations Credit Suisse could require an extra Swfr14 billion (£10.72 billion) of new capital.

With all five major UK banks due to report first-half results next week, investors are increasingly wary about how those with large investment banking divisions, like RBS and Barclays, have fared and what their medium-term prospects are.

HSBC declined to comment on the job cuts ahead of its figures on Monday.

Credit Suisse's investment banking division, much of which runs out of Canary Wharf, made profits of just Swfr231 million during the three months to the end of June, down 71% on the same period a year ago and 83% behind the first quarter.

Analysts pointed out that between the first and second quarter, the division's cost-income ratio shot up from 73% to 91%.

Across the whole bank, post-tax profits halved from Swfr1.6 billion to Swfr768 million.